Thoughts - A Great Thread - Not Mine...........but?

[Panda]

http://www.housepricecrash.co.uk/newsblog/2011/02/blog-and-neither-is-the-bank-of-england-32344.php

[Panda]

Mark Wadsworth. This guy is good, very good, a housing bear, great with numbers, in rented, worth reading his posts, and his couple of associates, Flashman and Icarus.........It seems Mark W is an accountant who stood as a candidate at the last GE, and has done numbers work for UKIP. Keep posting Mark...

P

Edited February 11, 2011 by Panda

[rantnrave]

Makes a bit more sense if you read this thread from yesterday first:

http://www.housepricecrash.co.uk/newsblog/2011/02/blog-buyers-strike-32334.php

[Bloo Loo]

normally buying a bond adds nothing to the money supply, as the buyer pays with cash ha already has collected from his investors.

A gilt is a special bond backed by taxpayers, and as such , the money wuold normally come from the same place....ie, a private bank would monetise the debt with cash it already had.

To get more money in the system, the bank could BORROW cash from a FED at interest using the Gilt as collateral.

In the Case of QE, the bank SELLS the bond to the FED...no monetisation takes place...it is a direct swap of an asset for cash, cash which itself was not monetised at interest, and is therefore simply printed into existence...This cash furthermore, earns no interest for the FED.

The Bond however does earn interest for the FED...the QE'd cash is now in the system looking for a home...at the mo its commodities and other speculations.

The QE charade is doing its job...Obfuscating the process of money printing and handing millions to the "favoured" buyers of the Gilts...bankers of course.

[TwoWolves]

My comment to that thread :

The funny thing is that QE leaves us all in a situation where we get "the effect of" inflation and deflation at the same time. Its working now and forestalling Armageddon because of the way its been well coordinated across the major economies and its only because of the interconnectedness of globalization its been in everyone's interest.

It’s a brilliant plan but the flaw that I see is that deflation is the bitter medicine that we all need to take to resolve the post-bubble hangover. Coming off QE is going to be a rough ride because that's when the unity is likely to fray and the horror of sky-high asset misallocation becomes apparent.

[Bloo Loo]

My comment to that thread :

The funny thing is that QE leaves us all in a situation where we get "the effect of" inflation and deflation at the same time. Its working now and forestalling Armageddon because of the way its been well coordinated across the major economies and its only because of the interconnectedness of globalization its been in everyone's interest.

It's a brilliant plan but the flaw that I see is that deflation is the bitter medicine that we all need to take to resolve the post-bubble hangover. Coming off QE is going to be a rough ride because that's when the unity is likely to fray and the horror of sky-high asset misallocation becomes apparent.

printing is always a great plan...its just that there is NEVER enough of it to cover the debt..which needs WEALTH to cover it...not more tokens.

[Tortoise]

My comment to that thread :

The funny thing is that QE leaves us all in a situation where we get "the effect of" inflation and deflation at the same time. Its working now and forestalling Armageddon because of the way its been well coordinated across the major economies and its only because of the interconnectedness of globalization its been in everyone's interest.

It’s a brilliant plan but the flaw that I see is that deflation is the bitter medicine that we all need to take to resolve the post-bubble hangover. Coming off QE is going to be a rough ride because that's when the unity is likely to fray and the horror of sky-high asset misallocation becomes apparent.

What I don't understand is why we are experiencing inflation from QE whereas the Japanese experienced continuing deflation from the same policies. Anyone Know?

[gravity always wins]

This all comes from a pragmatic capitalist essay which was also linked to

linky

a quote below to show how absurd the logic is

When the US government was working under the gold standard the US Treasury would literally print up certificates to purchase gold from the gold mines. These gold bars would be delivered to the government and the Treasury would issue a check to the miner. This new money would end up at the Federal Reserve Bank in the form of deposits. This would naturally increase the money supply. An increase in the money supply is scary for obvious reasons. So, the term debt monetization has its origins in the days of the gold standard, but persists to this day despite the fact that we are no longer on a gold standard. Not surprisingly, the term is still used today despite the fact that the US government can’t monetize its debt via Fed purchases (I elaborate below).

But the fact that the Treasury ends up with gold to back the new money that has entered the economy is somehow "monetisation" inspite of the fact it took considerable effort and energy skills to mine this stuff. But because our money is not backed by anything means we can now issue it in unlimited consequences at the stroke of a pen and that is somehow better.

His argument seems to be its the Treasury doing the monetisation not the Fed - I say semantics its still theft. I guess if you live in a system where theft is the norm its hardly worth calling it theft anymore.

Load of old cobblers I say.

[Bloo Loo]

This all comes from a pragmatic capitalist essay which was also linked to

linky

a quote below to show how absurd the logic is

But the fact that the Treasury ends up with gold to back the new money that has entered the economy is somehow "monetisation" inspite of the fact it took considerable effort and energy skills to mine this stuff. But because our money is not backed by anything means we can now issue it in unlimited consequences at the stroke of a pen and that is somehow better.

His argument seems to be its the Treasury doing the monetisation not the Fed - I say semantics its still theft. I guess if you live in a system where theft is the norm its hardly worth calling it theft anymore.

Load of old cobblers I say.

he misses the point of monetisation.

monetising gold is the changing, by a bank, of a gold brick into easily spendable cash. the gold still belongs to the borrower, but it is now monetised in exchange for a part of the wealth the borrower can create. the money comes in the form of a loan.

a bank buying gold is entirely different. teh man with the money no longer has the gold...he doesnt owe the banker anything.

however, the bank now has wealth, and it didnt cost him a penny to get it...if he has printed the cash to pay for it.

[gravity always wins]

What I don't understand is why we are experiencing inflation from QE whereas the Japanese experienced continuing deflation from the same policies. Anyone Know?

Yes in a very basic nutshell, Japan printed lots of Yen then sold them for Dollars driving down its currency (helping exports and domestic economy) and flooded the western world with cheap money.

Two points of difference Japans troubles occured during a global boom not a global depression so there was a demand for their funny money abroad.

Secondly they didn't have much competition then but now everyone is at it.

The money never stayed at home so didn't influence its domestic economy but as the carry trade has unwound its sitting somewhere waitng to flood its domestic economy.

Basically Japan never really had a deflation it money supply grew. But thats a whole different ball game.

[scepticus]

What I don't understand is why we are experiencing inflation from QE whereas the Japanese experienced continuing deflation from the same policies. Anyone Know?

I answer that question right here:

http://liminalhack.wordpress.com/2010/11/04/water-water-everywhere-not-a-drop-todrink/

at your service etc etc

[scepticus]

Coming off QE is going to be a rough ride because that's when the unity is likely to fray and the horror of sky-high asset misallocation becomes apparent.

we will not be coming off QE as long as continued fiscal retrenchment is reversing the inflationary impact of that QE, and without the QE, the fiscal retrenchment would cause economic implosion. Put another way, large scale fiscal retrenchment in major western economies without accompanying QE is not economically or politically viable.

Obviously you cannot go on doing QE AND issuing more debt at the same time, without having a credible plan to reduce the debt issuance.

And this is it seems exactly what Messrs king and Osborne are doing.

Good to see the penny finally starting to drop with at least some HPC-ers.

[gravity always wins]

he misses the point of monetisation.

monetising gold is the changing, by a bank, of a gold brick into easily spendable cash. the gold still belongs to the borrower, but it is now monetised in exchange for a part of the wealth the borrower can create. the money comes in the form of a loan.

a bank buying gold is entirely different. teh man with the money no longer has the gold...he doesnt owe the banker anything.

however, the bank now has wealth, and it didnt cost him a penny to get it...if he has printed the cash to pay for it.

Under a gold atandard as he ws refering to the note is redeemable for the gold. otherwise it wouldn't be a gold standard.

Monetising gold would involve paying for it with a certificate and then some time later not redeemong the certificate for the stated quantity of gold thats getting owt for nowt.

A gold standard is a gold standard until people starting issuing extra certificates then it isn't a gold standard.

[Bloo Loo]

Under a gold atandard as he ws refering to the note is redeemable for the gold. otherwise it wouldn't be a gold standard.

Monetising gold would involve paying for it with a certificate and then some time later not redeemong the certificate for the stated quantity of gold thats getting owt for nowt.

A gold standard is a gold standard until people starting issuing extra certificates then it isn't a gold standard.

gold, houses, silver, shares....whatever is monetised, it matters not.

If the new owner exchanged no wealth for the assets, then that is printing and theft. IMPO

[TwoWolves]

we will not be coming off QE as long as continued fiscal retrenchment is reversing the inflationary impact of that QE, and without the QE, the fiscal retrenchment would cause economic implosion. Put another way, large scale fiscal retrenchment in major western economies without accompanying QE is not economically or politically viable.

Obviously you cannot go on doing QE AND issuing more debt at the same time, without having a credible plan to reduce the debt issuance.

And this is it seems exactly what Messrs king and Osborne are doing.

Good to see the penny finally starting to drop with at least some HPC-ers.

I don't share your optimism. It only works with global coordination and its causing havoc in the asset nations - they will want to get off the ride soon. There will then be a sharp asset revaluation, it could even be years from now but it will happen.

[Tortoise]

Yes in a very basic nutshell, Japan printed lots of Yen then sold them for Dollars driving down its currency (helping exports and domestic economy) and flooded the western world with cheap money.

Two points of difference Japans troubles occured during a global boom not a global depression so there was a demand for their funny money abroad.

Secondly they didn't have much competition then but now everyone is at it.

The money never stayed at home so didn't influence its domestic economy but as the carry trade has unwound its sitting somewhere waitng to flood its domestic economy.

Basically Japan never really had a deflation it money supply grew. But thats a whole different ball game.

Ahh - I get it. Thanks for the explanation

One quick question. Do you know why the Japanese never had imported inflation from the devalued Yen (as we have in the UK from the devalued pound)

Edited February 11, 2011 by Tortoise

[Tortoise]

I answer that question right here:

http://liminalhack.wordpress.com/2010/11/04/water-water-everywhere-not-a-drop-todrink/

at your service etc etc

Thank you. I'd be interested to read you piece on Zirp everywhere that you mention at the end. Is it online yet

[gravity always wins]

Ahh - I get it. Thanks for the explanation

One quick question. Do you know why the Japanese never had imported inflation from the devalued Yen (as we have in the UK from the devalued pound)

Good question in which I have to declare a hatred of all Govt inflation fugures especially when they include falling domestic asset prices to negate any rise in import and global prices and then exclude food and energy.

But essentially now we are printing so is everyone else so the same amount of commodities are being bid up in all currencies. Plus we are all now in a global commodities boom due to prining now so its going to start to affect everyone.

the video gives a good indication that prices are rising and they are probably being masked like ours are by less quality, less quantity and a change of eating habits we are all boiled frogs when it comes to the truth of inflation.

Edited February 11, 2011 by gravity always wins

[Scott Sando]

We don't have inflation, we have "Unexplained shrinking value phenomenon", which is what the pound is currently going through.

Merv actually said this the other day

Edited February 11, 2011 by Scott Sando

[easy2012]

we will not be coming off QE as long as continued fiscal retrenchment is reversing the inflationary impact of that QE, and without the QE, the fiscal retrenchment would cause economic implosion. Put another way, large scale fiscal retrenchment in major western economies without accompanying QE is not economically or politically viable.

Obviously you cannot go on doing QE AND issuing more debt at the same time, without having a credible plan to reduce the debt issuance.

And this is it seems exactly what Messrs king and Osborne are doing.

Good to see the penny finally starting to drop with at least some HPC-ers.

QE is less of a problem, deficit spending is.

In fact, deficit spending is very nice for those close to the money and it is making some people very rich on paper (e.g. primary bond dealers).

The transfer of wealth from the poor to the rich is now being implemented at an accelerated paced and it will not end well..

[50sQuiff]

I marvel at the logical contortions of these 'intellectuals' as they rationalise the alchemy of our monetary system. But I shouldn't, because everything I read suggests it was ever thus.

One day, reality intervenes and normal folk lose confidence in their money. But to the very last, these modernists and financiers will cheer the rotten system all the way to its disintegration.

[Bloo Loo]

Denningers take on too big to fail

http://market-ticker.org/akcs-www?post=179781

[Sledgehead]

I marvel at the logical contortions of these 'intellectuals' as they rationalise the alchemy of our monetary system. But I shouldn't, because everything I read suggests it was ever thus.

One day, reality intervenes and normal folk lose confidence in their money. But to the very last, these modernists and financiers will cheer the rotten system all the way to its disintegration.

+1

They remind me of art critics attempting to add a rationale to some guff at the tate modern. When Bernanke reads he's a "Wizard" you just know he's thinking the same thing as Tracy Emin does every time some coiff-bonced buffoon from the press attempts to impose meaning upon her emperor's new un-made bed-clothes.

Edited February 11, 2011 by Sledgehead

[scepticus]

Thank you. I'd be interested to read you piece on Zirp everywhere that you mention at the end. Is it online yet

try these:

http://liminalhack.wordpress.com/2010/11/22/sublimation/

http://liminalhack.wordpress.com/2011/01/04/are-we-nearly-there-yet/

[FreeTrader]

Denningers take on too big to fail

http://market-ticker.org/akcs-www?post=179781

Don’t let Traktion see that Denninger post.

Seriously though, you can make a similar case out for the UK. The problem is, in the Bank of America example that Karl cited, there may be $4/500bn of liabilities there that are owed to overseas central banks/sovereign wealth funds/foreign investors. Faced with a choice, do you stiff Johnny Foreigner, or do you stiff Joe Public?

The answer should be simple – as Denninger says, the loss hierarchy is very clear, and depositors should be less at risk than other creditors (because they generally receive a lower return).

However, if you’re reliant on heavy capital inflows to fund your nation’s trade deficit (which may be indirectly caused by your budget deficit), and your thoroughly pi$$sed off counterparty might start mobilising troops in areas of the globe that you consider strategically vital, can you afford to bite the hand that feeds you?

I think that’s what we’ve seen with the whole bank bailouts/Fannie/Freddie circus. It’s keeping the overseas creditors whole (as well as the domestic bankers of course).